Let your mind wander for back to the late 80s/early 90s when being a millionaire still commanded some respect. This was a time when people in Western society aspired to this seemingly unachievable goal as if it were the mark of instant success. Now fast forward to 2007 when every man and his dog have reached the no longer illusive 7-figure target. In may parts of the Western world, what was once only for the elite is now accepted as the social norm. So this is the question I pose to you â is inflation the sole cause of this perceived increase in wealth, or is there another underlying reason that suburbanites are stumbling over piles of dollars? Bryn.
Which is nothing more than inflation. Alot of the fiat money that has been created over the last six years has ended up in real estate.
Bullshit. You can't tell me that a person whose home has gone up 400% in value is inflation. It's relative pricing. In other words, when Suzie Snowflake cashes out 400k in equity from the sale of her home, that is real money that has real purchasing power. Some of the appreciation in home values is because of inflation but a lot of it is supply and demand. There is no land in this country in urban areas and in nice neighborhoods. Let me put it another way, home prices in St.Louis, Kansas City, Oklahoma City, Des Moines, Omaha, etc, have seen no appreciation. Some have actually seen depreciation.
They have to replace their house, though. So their true net worth really hasn't appreciated, has it? Plus, they have high carrying costs (taxes, insurance, utilities). Can they use their house as one can use pure, liquid cash? Not anymore. Now, what happens if depreciation sets in? There are a lot of variables.
No, you need to think this through. Say I live in Missouri where the cost of living is nothing. What stops me from owning 10 properties in northern CA that are appreciating at 40% a year. Those dollars are repatriated to MO where they go a lot further then they do in CA. It's the foundation of derivatives. Money is always seeking the highest return, in the most stable environment with the greatest amount of purchasing power.
Under that scenario, I agree. Few people own 10 homes in California, though. They're typically stuck with whatever the market bears (and imposes) in their local market. Plus, California isn't immune from rapid housing deflation. It happened in 1987, and it was pernicious, nasty, and destroyed 38% of housing values, lasing until 1994.
PAWs versus UAWs. Prolific accumulaters of wealth will always win, because they won't spend more than they have coming in. They find ways to be income independent. Under accumulaters of wealth simply spend at a rate that outstrips their income, no matter how high their income. They find ways to become income resistant. I swear to you that I know people worth 8 figures that live on 40k a year.